Are you leaving ERTC money on the table?

Twenty-eight Thousand dollars. 

 That’s how much you could get per employee for the 2021 year with the Employee Retention Tax Credit. And for 2020, you could get up to $5,000 per employee.  

 As part of the CARES Act, this is a refundable payroll tax credit that you can retroactively plan to receive even after significant changes have taken place in your business, such as a change of ownership. Have you set yourself up to receive these funds?  

 Here’s what you need to know: 

1. Sales must have declined 50% for any quarter of 2020 and for 2021, qualification is calculated separately for each quarter to show a 20% decline in sales. 

2. The amount eligible for credit is not based on taxes due. For 2021 you can claim 70% of wages up to $10,000 per quarter. Thus, the refund could be $7,000 per employee per quarter. 

3. You can still claim for 2020 wages after 3/13/2020 and each quarter of 2021. Current policy would allow amended returns to be filed for up to three years after the quarter ended. 

4. Wages used for PPP forgiveness cannot be used in ERTC. 

• If you qualify for ERTC every quarter, it is beneficial to limit the wages used for PPP forgiveness. 

• If you only qualify for ERTC some quarters, it may be important which weeks you pick for PPP forgiveness. You must pick weeks within 24 weeks of PPP funding, but you probably don’t need all 24 weeks. Depending on which quarters you qualify for ERTC, and which quarters your 24 weeks overlap, you may want to pick the PPP weeks that are in the quarter that you don’t qualify for ERTC.  
• Wages must equal 60% of your PPP. You can use utilities, rent, benefits, transportation and open POs for the other 40%. It may have been easiest to only use wages to justify forgiveness in 2020. However, you may not want to do the same in 2021 so that you can use more wages for ERTC. 

5. You may be able to get funds immediately when you file your quarterly taxes by withholding payment for credit due. If filing amended 941-X, the IRS will issue the refund. There is no track record of how soon the IRS will issue refunds. 

6. If you use a third-party to process your payroll, there will be no additional charge if ERTC is requested before quarter taxes are filed (form 941). They may charge up to $1,000 if you request credit after the form has been filed, as they will need to submit an amended form 941-X. 

7. No documentation needs to be submitted to the IRS and, in many cases, third-party processors are not requesting any documentation. Detailed payroll records related to PPP forgiveness and ERTC credit should be maintained as well as proof of quarterly sales reduction demonstrating eligibility. 

8. Unlike the PPP funds that are tax free, the ERTC benefit is taxable as of the time this article is written.  

9. If you sold and/or consider selling the business, there are special provisions: 

• If you sell the business prior to getting PPP forgiveness, you will probably need to escrow the full PPP amount until the IRS issues formal forgiveness. Further details on PPP and the change of business ownership can be found here. 
• ERTC can be filed before or after a business sale. 

1. 1. If it is an asset deal, the credit will be returned to the seller. The credit request can be filed before or after the closing date. 
   2. If it is a stock deal, any credits or refunds will go to the new owner of the ongoing corporation. 

Ronald Myer is president of Summit Advisory Inc.